Freddie Mac 1 Test
The entire mortgage industry can be boiled down to - answer• Borrowers have different
wants and needs for sourcing funds.
• Primary market lenders make loans to borrowers.
• Secondary market lenders purchase mortgages the primary market has made to
borrowers.
• Capital markets are where lenders sell securities to investors.
Buyers, also known as collateralized mortgage-backed security (CMBS) investors look
for an array of characteristics in those securities including - answer• a variety of product
and structured instruments
• competitive yields
• pre-payment mitigation
• commercially underwritten assets
• choice of investment grade
• government and GSE guarantees
• geographically dispersed assets
• historical performance predictability
Loan servicers - answerperform tasks necessary to maintaining the mortgage, including
collecting monthly mortgage payments and conducting annual property inspections.
One basis point is - answerone hundredth of a percent: 1bp = 0.01% and 100 bps = 1%.
debt coverage ratio (DCR) - answeris a benchmark to measure a property's ability to
cover its debt payments. DCR = NOI/ ADS
NOI - answeris the net cash flow from property operations, income minus expenses. It is
exclusive of capital improvements (major non-recurring construction projects) and any
mortgage debt payments.
The amortization period - answeris the length of time it takes for the borrower to pay off
the entire UPB (i.e. down to zero). During the amortization period, each mortgage
payment goes towards both the principal and the interest. Freddie Mac's standard
amortization period is 30 years (360 months). The amortization period is not to be
confused with the loan term: the length of time the borrower commits to the lender, note
rate, terms, and conditions. When the amortization period is longer than the loan term,
there is a balloon payment at maturity, a large payment due at the end of a loan. The
risk in balloon payments is that the borrower will not have the money on hand to pay off
the balance.
The entire mortgage industry can be boiled down to - answer• Borrowers have different
wants and needs for sourcing funds.
• Primary market lenders make loans to borrowers.
• Secondary market lenders purchase mortgages the primary market has made to
borrowers.
• Capital markets are where lenders sell securities to investors.
Buyers, also known as collateralized mortgage-backed security (CMBS) investors look
for an array of characteristics in those securities including - answer• a variety of product
and structured instruments
• competitive yields
• pre-payment mitigation
• commercially underwritten assets
• choice of investment grade
• government and GSE guarantees
• geographically dispersed assets
• historical performance predictability
Loan servicers - answerperform tasks necessary to maintaining the mortgage, including
collecting monthly mortgage payments and conducting annual property inspections.
One basis point is - answerone hundredth of a percent: 1bp = 0.01% and 100 bps = 1%.
debt coverage ratio (DCR) - answeris a benchmark to measure a property's ability to
cover its debt payments. DCR = NOI/ ADS
NOI - answeris the net cash flow from property operations, income minus expenses. It is
exclusive of capital improvements (major non-recurring construction projects) and any
mortgage debt payments.
The amortization period - answeris the length of time it takes for the borrower to pay off
the entire UPB (i.e. down to zero). During the amortization period, each mortgage
payment goes towards both the principal and the interest. Freddie Mac's standard
amortization period is 30 years (360 months). The amortization period is not to be
confused with the loan term: the length of time the borrower commits to the lender, note
rate, terms, and conditions. When the amortization period is longer than the loan term,
there is a balloon payment at maturity, a large payment due at the end of a loan. The
risk in balloon payments is that the borrower will not have the money on hand to pay off
the balance.
